Posts Tagged ‘Just Retirement’

When many equity release providers are competing directly in using their lifetime mortgage interest rates, Stonehaven have decided to compete in a different field by taking the bold step of moving away from Gilt-based early repayment charges (ERC’s) & introducing a fixed penalty basis covering the first eight years of the equity release loan.

With effect from 16th March 2015, Stonehaven will move its whole lump sum & interest only lifetime mortgage range of plans over to an 8 year fixed early repayment charge of 5% in the first 5 years, 3% in years 6-8 and none in the 9th year & thereafter.

Background to Equity Release Early Repayment Charges

Due to the nature of the product – ‘Lifetime’ Mortgage, the plans have been designed to run for the rest of the homeowners life. This can create uneasiness for some people taking out equity release schemes in retirement as they cannot always say with certainty what their future plans entail with regards to their property.

Equity release early repayment charges have historically been a mixture of fixed penalty, gilt based, Bank of England base rate related and even long term interest rates called SWAP rates. The majority of equity release schemes across the market today is predominantly linked to government gilts. This can be in the form of an individually selected gilt such as Aviva’s, which is based on the age of the youngest homeowner, or follow an index of gilts such as the FTSE UK Gilts 15 Year Yield Index with Just Retirement.

These gilt related penalties on paper can look extreme given that Aviva can charge upto 25% of the amount repaid dependent upon the gilts yield falling from inception. Additionally, companies such as Just Retirement & Pure Retirement can charge a maximum of 20% of the fall in the FTSE UK Gilts 15 Year Yield Index. Therefore, the nature of gilts leads to uncertainty of their future levels & consequently any prediction regards their future level is unknown & cannot therefore be relied upon for early repayment purposes.

Currently, only one equity release company offers the certainty of knowing exactly what the future penalty could potential be; this company is LV= (Liverpool Victoria). Charging 5% for the first 5 years of the amount repaid & then 3% in the next 5 years, they actually have no early repayment charges after 10 years. This have given them a niche position within the equity release marketplace.

Stonehaven’s Move to Fixed Equity Release Early Repayment Charges

However, LV= equity release now have fresh competition and this is the beauty of where the equity release industry is right now. Competition is driving this market forward and its with such innovations & product development that is going to extend the volume of lending in 2015, to beyond the £14 billion released in 2014.

Stonehaven have been considering this move previously, however with their takeover by MGM, its plans were put on hold. With a new team behind Stonehaven now, they have obviously decided the time is now right to introduce fixed penalty equity release plan to the market. It will be interesting to see how these new fixed ERC’s are perceived. Historically, applying fixed rate early repayment charges can come at a cost and this is usually borne in the equity release interest rate with an extra levy on it.

At present Stonehaven have not indicated any changes to their interest rates with the lowest currently being the Stonehaven Interest Select Lite plan at 5.46% monthly (5.87% representative APR). Therefore, the fixed penalty charges look to have been absorbed into the current equity release deals on record.

So for anyone considering the equity release & uncertain regards whether an equity release scheme will be required over the longer term, the new equity release early repayment charge from Stonehaven could be a viable option to consider. Providing fixed, transparent & easy to understand ERC’s with just 5% penalty in the first 5 years, 3% for the next two & zero after the end of the 8th year, Stonehaven have taken over LV=’s mantle of potentially the best early repayment charging system available in the equity release market today!

Further Information

To learn more about Stonehaven’s range of products attracting the new 8 year fixed penalty, please contact the Equity Release Supermarket team on 0800 783 9652 or email mark@equityreleasesupermarket.co.uk.

Each year the equity release industry celebrates its achievements at the Merchants Taylors Hall with its version of the Equity Release Awards 2014. This year in particular, equity release schemes have been taken out in record amounts & have led to unprecedented growth. This has been for a number of reasons, but primarily the innovation of new equity release plans from the likes of Aviva, Hodge Lifetime & lately Stonehaven.

However, it is the Aviva Flexible Lifetime Mortgage Plan that here at Equity Release Supermarket has seen the greatest impact & has helped many of our clients achieve their retirement goals. It was therefore no surprise that Aviva won the category of Best Lifetime Mortgage provider in 2014. This followed a series of enhancements to their lifetime mortgage plans this year, coupled with the lowest equity release interest rates, currently starting as low as 5.63% (5.83% representative APR).

These successful changes include:

Allowing clients to voluntarily repay up to 10% of the original capital borrowed each year, in up to 4 installments with a minimum of £500 a time.

On joint life equity release cases they now allow the surviving partner to sell their home and repay the scheme without penalty as long as it’s within 3 years of the first person dying or entering long term care.

Thanks to these extra features, Aviva has increased their market share even further but despite winning their equity release award it would be wrong to view their product as the best on the market for everyone. In order to find the best equity release scheme for you it’s important to get independent, whole of market advice from a company like Equity Release Supermarket.

Equity Release Supermarket’s philosophy is to spend valuable time to find out exactly what you’re goals are so that we can recommend the most appropriate scheme based specifically on these requirements. So, once we’ve gathered sufficient information based on your current situation, identified no alternative solutions exist, it is only then that we would enter the realms of recommending equity release schemes.

But how do we work out which equity release scheme is the ‘best’ plan for my clients? We consider a range of factors, such as:

Seven Factors to Help Find the Best Equity Release Plan

Equity release schemes are constantly innovating and keeping up with their progress can be a minefield for those looking for the best equity release plan today. To help provide guidance on understanding the various aspects of equity release plans that can influence this decision, I have provided seven features and areas of research that Equity Release Supermarket advisers would analyze and discuss with you.

Best Interest rates:

There are some excellent online comparison websites such as www.EquityReleaseSupermarket.co.uk where you can compare the best equity release deals in the market at any given time. The equity release comparison sites will currently highlight Aviva as offering some of the lowest interest rates for both drawdown lifetime mortgages and their lump sum counterparts.

However, simply offering the lowest lifetime mortgage interest rate may not make their scheme the ‘best’. Aviva do charge a higher interest rate to access the funds in any cash reserve facility than the initial rate and they cap the reserve amount if you initially release less than 50% of the overall loan amount. This may not therefore be suitable if you are looking to have a maximum cash reserve facility for your future retirement needs.

Therefore, it is down to your equity release adviser to assess & understand what your priorities are in leading to their recommendation of the best equity release scheme for you.

For instance, if you need to take the maximum equity release loan from your property, interest rates tend to be higher than the drawdown lifetime mortgage schemes. Hence, the ‘best’ scheme could depend on any of the other factors names above. The possible reason for the higher interest rate for the maximum equity releases could be the potential of invoking the no negative equity guarantee is likely to be greater the higher the release borrowed. This cost being passed on by way of the higher interest rate to compensate.

Currently, at the time of writing, the lowest lifetime mortgage interest rate is 4.75% (5.10% representative APR) which is the Hodge Retirement Mortgage. If you want to make monthly payments of interest to maintain a level balance, this scheme is excellent but it wouldn’t be the ‘best’ scheme if you don’t want to make any interest payments. As you can see, the lowest equity release interest rate alone does not determine it being the best scheme.

Maximum Equity Release Plans

Equity Release Supermarket would always recommend that you only release the capital that you need, rather than releasing the maximum loan. This one area alone, in assessing the best equity release scheme, can have the greatest influence on the final inheritance for your children or beneficiaries. In fact, this aspect we find is where clients need to be guided carefully by their adviser, as many do not understand the consequences of taking too much equity from their home.

In fact, drawdown lifetime mortgage plans are now the most common form of equity release taken in 2014 & will surely be for equity release 2015 aswell. By taking the home equity plan funds in small staggered amounts, rather than all upfront makes practical sense for your own future balance & the inheritance for your beneficiaries. These drawdowns can be taken in little amounts as an initial £10,000, and then followed by smaller £1,000 tranches from the likes of Hodge Lifetime. This can be utilised to suit any future spending plans as & when they arise.

During my 15 years of advising clients on equity release, one of the most common queries I receive is ‘Can I access further funds?’

Let’s look at an example:

Margaret and Graham are both 70 and live in a bungalow worth £300,000. They want to be able to take regular holidays and buy a new car. In the future they’d like to gradually improve their property and supplement their income. My advice was to take an initial loan of £25,000 and set up a reserve facility. In order to work out the ‘best’ scheme for them we discussed whether the interest rate or the size of the reserve was more important to them. They opted for a larger amount of money on reserve. Therefore, after the initial loan – Pure Retirement offered a cash reserve of £83,000, while the Aviva Flexi Plan with a lower interest rate only offered a reserve of £48,000.The clients therefore opted for the Pure Retirement Drawdown Plan based on the future reserve facility.

Another important factor to a recent client was that she wanted the certainty that the funds available on reserve were guaranteed to be in place. Many lenders do not ‘guarantee’ the future of their drawdown facilities in case of change of circumstances, economic reasons or they just decide not to lend again in the future.

My client was concerned in case the lender withdrew her cash reserve funds in the future. In her circumstances LV= proved to be the best equity release scheme for her as they’re the only company to offer a guaranteed drawdown reserve, which is guaranteed to be in place for a minimum of 15 years.

Best Early Repayment Charges (ERC’s)

Equity release schemes are designed as a lifetime commitment and are not aimed for short term borrowings or people who wish to repay the balance before the plan ends; on death or the last person moving into long term care. That said, there are a growing number of people who would possibly repay their equity release scheme early; due to change in circumstances, future health reasons or maybe family reasons. Therefore the ‘best’ scheme would be one that offered flexibility on early repayment charges over a limited number of years, either none at all or the lowest fixed rate possible if acceptable to the client.

An equity release company plan that has considered the topic of early repayment charges has been Hodge Lifetime. Two of their lifetime mortgage plans have been carefully thought out on this particular subject. The Hodge Lifetime Mortgage Plan allows homeowners the ability to downsize after 5 years of taking their plan & repay their lifetime mortgage with NO penalties. In fact even leading upto this 5 year period, should one downsize the penalty reduces by 1% each year; from 5% down to 0% over this duration.

The second Hodge product that assists with early repayment charges is the Hodge Retirement Mortgage. This product is an interest only lifetime mortgage and has a fixed interest rate for a period of 5 years. The Hodge Retirement Mortgage therefore mirrors this time by aligning the early repayment charges (ERC’s) to match the same term. Subsequently, the early repayment charges are just 5% for the first 5 years of the retirement mortgage term.

Most equity release lenders use government gilts as a measure in working out any potential ERC’s. This means that the early repayment penalty is variable and could be as high as 25% of the initial loan amount. For the standard lifetime mortgage plans, LV= are currently the only company who offer a fixed early repayment charge, which is 5% for the first 5 years and 3% from years 6 to 10. After the 10th year you can repay the scheme without penalty, so this may prove to be the ‘best’ scheme for some clients knowing what their future holds, or the Hodge Lifetime schemes should they have plans for moving house after 5 years.

Equity Release Set Up Costs:

Typically the lowest set up costs doesn’t necessarily mean the ‘best’ plan, although keeping a check & comparing equity release set up costs is important for a number of reasons, particularly to save money! Why pay more to a broker for their advice fee when another company can advise on exactly the same plan, but for a lower cost.

Equity releases set up costs are made up of a series of fees levied by different parties to the equity release process. These consist of the valuation fee, lenders application fee, solicitors’ fees & your adviser’s advice fee.

Valuation fees vary between lenders, however through certain specialist brokers such as here at Equity Release Supermarket there are now many lenders that will offer ‘free’ valuations by process you application through us.

Lender application fees can also vary, with some either being added or deducted from the release. Remember if the application fee is added this will cost more over the long run if the interest is to compound with no repayments made. The Hodge Retirement Mortgage application fee is the highest at £995, but they do offer the lowest interest rate. Pure Retirement offer a cash-back on some of their plans which can cover all of the set up costs, but their interest rate isn’t the lowest. Just Retirement offer one of the lowest admin fees at £500, but not necessarily the lowest interest rate either. As you can see this is an area where careful advice is needed to find the best equity release plan.

Interest & Capital Repayment Options

The major change to equity release schemes in the past few years has been the ability to pay either monthly interest or voluntary interest payments in order to cover some or all of the accruing interest. Again, the lowest interest rate might not equal the best plan.

We have already identified that the Hodge Retirement Mortgage offers the lowest rate, but you need to maintain a fixed monthly payment throughout its whole term. However, companies such as Stonehaven & More2life will offer an interest only lifetime mortgage too. However, rather than the concern of possible repossession should payments not be maintained, both Stonehaven & More2life will allow the switch from monthly payments to roll-up (ceasing payments), thus removing the concern of repossession.

Schemes which offer voluntary repayments, such as the Aviva Flexi, Hodge Lifetime and with effect from 1st December Stonehaven Interest Select range all allow upto 10% capital repayments. They all charge a higher interest rate, but they do include greater flexibility with regards to permitting these 10% voluntary payments.

The Hodge Flexible Lifetime Mortgage Plan & Aviva offer these schemes, and have now been joined by Stonehaven. Having a flexible approach has proved a popular way forward for many that wish to retain control over their future balance. These voluntary repayment lifetime mortgages can be planned so that either just the interest is repaid, thus keeping the balance level, or repaying the full 10% and actual seeing the mortgage balance reducing & even repaid over a period of 16-17 years!

Health & Lifestyle Factors

Your health & lifestyle won’t affect your eligibility for equity release but can actually improve the amount you receive, or the interest rate you obtain! There are currently four equity release companies that offer enhancements to their schemes.

More2life & Partnership Assurance specialise in enhanced lifetime mortgages, however they may not be the ‘best’ plans as the interest rates are often higher. However, this for some retirees interest rates may not be priority, but the maximum equity release lump sum is. Aviva also offer enhanced lifetime mortgages and can either offer a higher maximum release on its Lump Sum Max plan or alternatively reduce their interest rate, if the maximum is not required & taken on their drawdown flexi plan. Depending on your health criteria, some lending may not accept certain ailments. However, certain enhanced lifetime mortgage companies such as Just Retirement, will go deeper into their health & lifestyle questionnaire & consider illnesses the others won’t accept.

Inheritance guarantees

It’s sometimes important that my clients can leave a set inheritance for their families and some lifetime mortgage providers, such as More2Life, Aviva & New Life offers such guaranteed inheritance features. The inclusion of these guarantees can impact the interest rate and the amount of capital available, so careful consideration is needed to work out the ‘best’ scheme.

On forgotten equity release scheme that is over looked by many advisers are home reversion plans. Companies such as Bridgewater, New Life & Crown still offer this older form of equity release. Its popularity has waned considerably over the years, however the major benefit of home reversion plans is their ability to guarantee an inheritance at the end of the day. This works by selling a percentage of the property to the reversion company in exchange for a cash lump sum. The proportion of the property not sold is guaranteed to be passed on to the heirs once the house is eventually sold.

Summary

Overall, equity release advice is a specialist area of retirement planning. As we’ve seen there isn’t one scheme which is the ‘best’ on the market or fits all. There are far too many features & personal issues to consider that could have relevance to your recommended equity release plan. Thankfully, there are plenty of different options from many different providers. By receiving quality, bespoke advice from Equity Release Supermarket we can work out the ‘best equity release scheme‘ for you, without any obligation.

If you are looking to source the best equity release scheme for your particular circumstances & in need of specialist advice then please contact me – Mark Rumney on 07957 974826 or email – markrumney@equityreleasesupermarket.co.uk

Pure Retirement recently became the latest equity release provider to enter the lifetime mortgage market. Launched in January 2014, it signalled the re-emerging confidence & growing popularity in the equity release market.

However, it makes no sense for a new lender to enter the market without finding a niche for itself. So, over the past few months Equity Release Supermarket advisers have encountered practical experience of where the Pure Drawdown Plan has fitted in providing best advice scenarios. Here we help explain where we feel the Pure Retirement Plan wins, in an already competitive equity release marketplace.

First, the Pure Drawdown Plan in Detail

Before we enter the wheres & wherefores of how the Pure Plan fits in with equity release recommendations, let’s look at the Pure Retirement plan facts…

The Pure Retirement Drawdown Plan is the first offering from the new lender formed by funding assistance from equity release brokerage – Age Partnership. This follows the similar relationship that exists between more2life & Key Retirement Solutions and represents a growing trend where brokers have become equity release providers. This similarity is also evidenced from where the funding source is derived, in that Pure Retirement relies also on the same annuity backed insurer to give it the ability to fund its lending – Partnership Assurance.

The Pure Drawdown plan is a lifetime mortgage that starts later in life than most equity release schemes with a minimum age at commencement of 70. It’s aimed towards the higher end of the loan-to-value ratios without any medical underwriting, which the enhanced lifetime mortgage plans have the advantage of.

The starting percentage is 36% of the property value at age 70, which compares favourably with other high LTV products. Albeits not the highest maximum equity release plan out there, it has a neat trick up its sleeve with how it can still compete with these maximum lifetime mortgage plans. Details of how are explained later in this article.

As a member of the Equity Release Council, the Pure Drawdown Plan offers a free no-negative equity guarantee and 100% ownership of the home. Portability enables you to still move house once the plan has been set in force and the interest rate is fixed for life, launched at a reasonably competitive 6.74% monthly rate (7.1% representative APR).

The minimum loan is higher than most at £25,000, which is where Pure Retirement’s market lies and is available in England, Scotland & Wales.

This is a roll-up lifetime mortgage plan with the option of a cash reserve facility. Therefore, Pure Retirement will calculate the maximum release possible, from which an initial amount can be withdrawn. Any funds untaken, remain in a cash reserve held by Pure Retirement at no cost until needed in the future. Should it later be necessary to access these funds, they can be drawndown in minimum amounts of £5,000 with no further charges.

Where Pure Retirement Lifetime Mortgage Strengths Lie

As an independent equity release adviser, one of the most common reasons for client objection lies in the costs of implementing an equity release scheme. Here is where the Pure Drawdown Plan wins – set up costs!

Only one equity release company has previously offered a scheme whereby the standard terms dictate a cost effective route to market for any client taking out a lifetime mortgage, & that’s Partnership’s Enhanced Lifetime Mortgage. Some lenders will temporarily create pockets of time whereby a cashback exists or a reduced interest rate for a limited period, but these come & go.

However, Pure have created these features as a permanent fixture & all credit to them in seeing this gap in the market and understanding what the consumer requires. Afterall, many applicants want a release of equity to help them financially as they have limited funds in the first place. By asking them for more money up front, it makes the process more difficult for them to get the whole application underway. Pure Retirement alleviate these areas, both pre & post application stages, let me explain how and why.

Pure’s Set up Costs

Pure Retirement provide a two tier set up cost operation; one for equity release loans between £25,000 & £44,999, the other based on loans in excess of £45,000.

All equity release schemes will normally incur set up fees in four main areas – Valuation, application, solicitor & adviser charges.

Pure approach this differently in the sense they aim to cover the majority of costs; the more one borrows, the greater the help provided. For loans over £45,000 the cost is enhanced furthermore by them providing: –

FREE valuation

NO application fee

Contribution of £600 towards legal costs

Contribution of £500 towards the advice fee

Therefore, dependent upon how much the advice fee being charged is, which in the case of Equity Release Supermarket its £895; the net advice fee cost would only be £395. Bearing in mind we can source an ERSA equity release solicitor, for a reasonable £495 + VAT & disbursements (including home visit) the £600 contribution from Pure Retirement should cover this on a standard freehold property. This effectively means to implement a Pure Drawdown Plan with Equity Release Supermarket would only cost approximately £395!

Where Does the Pure Retirement Plan Offer Clients Best Advice?

As previously stated, Pure Retirement Drawdown Plan has been targeted to meet those clients looking towards a maximum equity release in order to assist them with their retirement needs.

A recent example of how the Pure Drawdown Plan can still offer a client a greater net amount, even though the maximum release is lower than a competitor, can be illustrated by a case I recently encountered: –

CASE STUDY

Pam, aged 79 was looking to move property & required a lifetime mortgage to help her with the purchase. She was in good health & needed the maximum release possible to not only help with the purchase but also the moving costs & legal fees.

The purchase price for the 3 bedroom flat in Cornwall is £140,000.

Pamela requires the maximum release possible which following extensive research would point towards the Just Retirement Lump Sum Plus plan which would release £64,400 at an annual interest rate of 6.75%. This comes with a free valuation, £600 application fee, legal costs & advice fee.

Looking further down our research table identifies the Pure Drawdown Plan with a 6.74% monthly interest rate. However, the maximum release Pure would offer would be a lower amount of £63,000. But upon delving deeper into this product & by analysing the charging structure it shows that the actual Pure Retirement net release could be higher.

Fee Type /Provider

Valuation

Application

Legals

Advice

Legal Contribution

Advice Contribution

Net Costs

Just Retirement

FREE

£600

£600

£895

£0

£0

£2095

Pure Retirement

FREE

£0

£600

£895

£600

£500

£395

Evidently, the Pure Retirement plan has £1700 reduced set up costs, compared to the Just Retirement plan. The next part of this calculation is then offsetting this £1700 advantage that Pure Retirement has against the £1400 extra that Just Retirement can release as their maximum.

The final result therefore shows that Pure Retirement will have a greater net release to Pam of £300 and therefore proceeds with the recommendation as the £300 would be more advantageous in her pocket.

The message therefore is never look at the top line maximum amount, but always to consider any incentives that may help improve the net offering.

Existing Equity Release Customers Looking for Additional Funds

Other areas where Equity Release Supermarket customers have already benefitted from the new Pure Retirement lifetime mortgage is under two scenarios: –

Where they have an existing equity release plan & need further funds.

If looking to obtain a lower interest rate, yet no lender can provide sufficient funds to enable the equity release remortgage

Following the routine check to see if any additional borrowings are available with their existing lender, it’s then our duty to research the whole of the market to see if any other equity release providers could assist.

One of the issues against switching equity release schemes is usually the set up costs that prohibit the transfer. Under the two scenarios, in the first the charges could swallow up any of the spare cash being targeted, and in the 2nd scenario the set up costs make any transfer non-profitable as these costs offset any future savings in interest.

Its therefore the case that set up costs can prevent future maneuverability with any home equity scheme.

This is where the Pure Retirement Drawdown Plan can come into its own with its lower set up costs. Under both scenarios, Pure’s reduced set up costs will help with the switching of equity release schemes. Under the 1st scenario it will lead to more funds being available to withdraw & secondly in obtaining a lower interest rate its helps bring forward the break-even point.

Summary

Set up costs are an important aspect in the consideration of accepting any equity release recommendation. However, your adviser should consider the whole picture and features necessary in your meeting your requirements. This is why any equity release adviser should be experienced, qualified and importantly independent too.

When meeting new clients who are interested in releasing equity from their home, I’m often asked whether equity release companies will accept leasehold properties. The answer is more often than not…yes, however with certain caveats.

Around 2 million properties are currently owned on a leasehold basis in the UK. These leases are often originally set to 99 years or 999 years from the date the lease was set up. Older properties in the UK tend to have leases arranged to expire in 999 years, whilst new builds or retirement developments are usually shorter and can be typically around 99 years+. Typically flats tend to be leasehold, as freehold flats do incur issues with ownership, particularly when there is more than one floor.

Equity release providers usually require a minimum of 75 unexpired lease years in order to qualify for an equity release scheme. Just Retirement and more2life insist on a minimum of 75 years. Likewise LV= and Aviva equity release like to see 80 years left on a lease while Hodge prefer 90 years of unexpired lease years.

For properties built with a 999 years lease, these don’t usually cause any problems at all as they are unlikely to expire within one’s lifetime! However, for properties arranged on a 99 year lease, it may mean that the lease has reduced below 75 years depending on when the property was built. For equity release purposes this is where problems can arise as if the remaining leasehold term is below the lenders minimum then action needs to be taken.

In this instance, there are two possibilities: –

It may be possible for you to buy the freehold. Further good news is that the cost of acquiring the freehold can be paid for from the proceeds of the equity release application.

Extend the lease for a term of 90 years on top of the unexpired term of the existing lease.

Both the aforementioned solutions will not only enable meeting the criteria for the equity release companies, but also will invariably add value to your property. Basically, as the term of a lease reduces, it can have an impact on the property value and can be especially significant with expensive leaseholds in London.

The legal paperwork necessary to either extend or buy the lease is relatively straightforward and is done by the same solicitor who is acting on behalf of the equity release client. Ashford’s solicitors specialise in leasehold extensions and freehold purchase. They are one of the former members of ERSA (Equity Release Solicitors Alliance).

Peter Barton, a partner at Ashfords said “I have seen over recent years an increase in the number of clients using equity release to extend their lease. Whilst the process may appear daunting we at Ashfords can take you through the process at the same time as dealing with the equity release, and it can be timed to complete at the same time.”

Additionally Peter Barton of Ashfords advises the following –

“We would always recommend speaking with your Landlord/Managing Agent to ascertain their costs in extending the lease. If those costs seem excessive it is always worthwhile speaking with any neighbours who may have extended their lease to see if they were charged the same, alternatively there are websites that contain calculators to give you an estimate of Landlord costs for extending the lease. We have found those very useful and have saved clients many thousands of pounds by enabling clients to negotiate with their Landlords.”

Leasehold properties can present a challenge with regards to applying for an equity release mortgage, however upon inspection of the deeds including the lease document can unravel the exact lease criteria. Additionally, by checking the lease can also clarify any unusual rules in relation to retirement properties or sheltered accommodation. These could include such clauses such as a sinking fund, where the freeholder can make provision for improvements or repairs, or even age restrictions on who can live there.

Other issues that leaseholders are obliged to pay for, & can be too prohibitive to some equity release companies, are the service charges. These are often paid for via maintenance charges and are usually determined by the freeholder or their agent who can decide the work that needs to be done, who will does it and the ultimate cost. All these issues should be investigated beforehand, so that if issues do exist they can be resolved as part of the equity release process.

For any questions about leasehold properties or to check your eligibility for equity release, please contact Mark Rumney at Equity Release Supermarket on 07957 974826. Mark can also be emailed directly at markrumney@equityreleasesupermarket.co.uk

We often read comments in newspapers, or see reports on TV, that before taking equity release you should always consider your alternatives, as there maybe financial solutions that have not been previously considered. One of these which has created much debate recently is the possibility of downsizing.

This article, discusses the advantages of downsizing and how equity release schemes can still have an important role to play in such situations.

Equity Release versus Downsizing

The practice of downsizing, effectively means selling one property at a higher value than the one you wish to move into. Therefore, the equity generated from the price differential can be used to support you financially during retirement. This is usually the main reason for people deciding against taking equity release.

Downsizing is fine in principle, and it is one of the options Equity Release Supermarket advisers always discuss with clients. However, for economic and personal reasons, the idea of downsizing can be impractical.

Equity Release Case Study – How downsizing works in principle

Take for example Peter and Clare, both aged 73 and living in their semi-detached house worth £275,000 which they’ve owned for over 30 years. They are settled in the area, their family and friends are local to them and they feel comfortable and safe in their current surroundings.

Unfortunately, they still have a mortgage of £100,000 and the lender has informed them they will need to repay this by the time they reach the age of 75. Like many people in their situation, they do not have the money set aside to do so. Their family are in no position to help as they too are struggling to keep their own heads above water!

So what are their options?

They could sell up, pay off the mortgage and look for another lower valued property. After taking into consideration the costs of moving this would mean considering properties around £165,000. Unfortunately, there are no properties of this value nearby, as even smaller properties locally that would still cost them in the region of £200,000.

Consider a remortgage with another lender. This would involve switching their £100,000 mortgage to another lender. However, most high street banks & building societies will not allow borrowing beyond the age of 70, or even 75.

The only option it would seem is to have to move further away, to an area they would not feel comfortable with, and considering this would be their last ever move, it must be the right decision as happiness during retirement is key. This situation leads to anxiety and stress for the couple as their network of friends and family would no longer be around them and they would be moving to an unknown location which may turn out to be both undesirable and unpopular.

Therefore, only option 1 is feasible, but there is still the issue that the property would not be entirely suitable for their requirements moving forward.

Revised Case Study – The maths of upsizing

Let’s revisit option 1 again, as there is some good news for those that wish to downsize.

Equity release schemes can actually allow you to ‘up-size’ when moving house by using the equity release tax free cash to help fund the purchase of the new property. This would mean Peter & Clare still purchasing of a lower valued house. However, by using a new equity release plan in conjunction with the purchase, they can now attain property values of around £200,000+, which they needed to stay near to where they currently live.

Taking Peter & Clare’s example again. The couple are both aged 73. Using the Equity Release Supermarket calculator, they could borrow upto £78,000 on a property worth £200000, on a roll-up lifetime mortgage basis.

This would enable them to purchase the £200,000 property; by using £165,000 of their own equity, plus the difference coming from an equity release plan. In fact given the equity release calculation figures they could go even higher if they wished to do so, or even use some of the surplus to have a small emergency fund for the future which is missing at the moment.

Now Peter & Clare have come to terms with the downsizing, the couple can now consider fine tuning their equity release solutions.

In fact, they could consider a lender allowing interest payments – commonly known as an interest only lifetime mortgage provided by companies such as Stonehaven. These off-set the effect of the rolled up interest, but unlike their existing mortgage which comes to an end in two years’ time, a scheme such as Stonehaven’s Interest Select Plan would be open-ended and therefore run for the rest of their life.

In some cases, depending on their state of health, Peter & Clare may be eligible for more money if they could take advantage of enhanced lifetime mortgage rates offered by some lenders. These enhanced lifetime mortgage schemes can lend more than any standard lifetime mortgage & give that extra amount making all the difference.

Upsizing Summary

So as a solution, what does this up-sizing option offer: –

The opportunity for the couple to repay their existing mortgage in full

To move to a location near to their current property, ensuring that they can maintain the support of family and friends

To continue to live in a safe environment with familiar surroundings including local amenities which have become increasingly important to them, such as their doctor and local hospital along with good transport links and shop

To purchase a property which they’re happy with rather than taking on a property ‘because they have no choice’

To down-size is an option which may be suitable to some, but like all decisions taken it needs careful consideration. This is where specialist equity release advice can make all the difference to retirees making such important financial decisions in retirement.

Having an alternative in the form of equity release scheme or interest only lifetime mortgage may enable them to make a decision based on a more practical solution and providing clients ‘peace of mind’, something which is not commonly advised upon in the news.

Equity Release Supermarket has experienced advisers who have dealt with such situations & can therefore make all the difference to people over 55 & in retirement.

Before committing to hours of research & requesting numerous quotes on equity release schemes, first you should establish whether you can even qualify for a lifetime mortgage or home reversion plan.

In this article we discuss what lenders are looking for when accepting the over 55’s onto their equity release mortgages.

As much as recent press articles have shown, there is a rapidly growing interest in Equity Release.

There are now further signs that this is being taken ever more seriously by policymakers faced with the consequences of an ageing population and increased financial difficulties being encountered by pensioners.

Recently a House of Lords committee highlighted the need for property-owning pensioners to unlock wealth in their home rather than try to push costs onto future generations, often including their own children.

The report concluded that ‘It is reasonable to expect those who have benefited from the property boom to support their own longer lives. We suggest that one way to address the current imbalance would be for older people to consider unlocking their house wealth.’

So who is eligible for a Roll-Up Equity Release Plan?

Unlike most lending products such as mortgages or personal loans, borrowing on equity release is not determined by your income, but by two main criteria. These are your age and your property.

Your age and circumstances

You must be aged over 55

You must be a homeowner and the property is your main residence

You must live in the UK.

Your age determines the percentage of the property value a lender will provide for you. For example, at the age of 65 with a property value of £175,000, you could expect a release around 30% of the property value – £52,500.

However, In some cases where a client has had a history of poor health, enhanced lifetime mortgage lenders such as Aviva, Partnership, more2life & recently Just Retirement will consider providing a higher amount, subject to further medical information.

By asking a series of health questions relating to your medical history, these enhanced equity release providers can judge how much more you could be entitled to depending on the severity of your health.

Therefore in the scenario above, a male aged 65 with a property value of £175,000 could now potentially raise upto 46% of the property value equating to £80,500. A substantially greater amount of £18,000 has been released by just taking advantage of one’s poor health!

The property itself

All lenders will insist on a valuation being carried out on the property. This valuation determines whether the lender will provide the funding required. The valuation is based on similar property sales in the area and one that could expect a reasonably quick sale. This is always the ‘unknown’ as property value is subjective, however using sites such as Zoopla may help as a guide, but not the bible!

Is it freehold or leasehold, and if leasehold, how many years are left on the lease?

Is it a listed building?

Does it have any agricultural ties?

Is it next to or above retail premises?

More importantly now – Is it in a high flood risk area?

Has the property suffered subsidence or been underpinned?

*There are cases where one client is under the age of 55 but their partner is over this age, and there are lenders who will consider holiday homes for the source of lending but these require further advice and information

Having been advising on equity release schemes since 2008, Equity Release Supermarket are aware of what an important decision taking releasing equity can be. With an old fashioned face-to-face approach our experienced advisers prefer to undertake home visits, where there is the opportunity to openly discuss both the advantages and disadvantages of the variety of products available with prospective clients and their family members .

If you want to benefit from the experience Equity Release Supermarket advisers have to offer and understand how equity release works further, then please contact the team, on 0800 678 5159 for a free initial consultation.

This is the first deal of its kind below 5.5%, whereby an equity release company can offer a single priced product for anyone between the ages of 60-75. This limited tranche of funds is available on a drawdown basis, with a minimum initial withdrawal of £20,000.

Just Retirement have been in the equity release market for 7 years now & provide a drawdown lifetime mortgage plan which enables an overall cash reserve facility from which you can take withdrawals as & when they are required. This flexibility means that you are only charged on the monies actually withdrawn, not on any funds left in the reserve facility.

The minimum withdrawal from the cash reserve is just £2000 & once the equity release plan has been set up, there are NO further charges for withdrawals. Properties situated in England, Wales & Scotland are eligible with a minimum property value of £70,000.

Additional perks of this limited offer is a FREE valuation & £500 cashback payable on completion. Therefore, there are no upfront fees to submit this Just Retirement application through Equity Release Supermarket.

To request a Just Retirement quote on the new 5.48% interest rate please click here or call one of the Equity Release Supermarket team on Freephone 0800 678 5159.

As stated these are limited available funds at this rate so please do not hesitate in contacting us.

Equity release interest rates have never shown as much flux as we are seeing today. There are probably two major reasons for this which is greater competitiveness between the lifetime mortgage lenders and lower long term interest rates.

Both factors combined have resulted in equity release interest rates seeing their lowest levels in their history. So, could this be the best time to latch on to one of these deals thereby consolidating a sub 6% interest rate for the rest of your life? Maybe.

There are two very good reasons for securing equity release interest rates at today’s levels. Firstly you will be charged less interest (which remember does compound), thus leaving more equity to use later on in life if required. The second reason would be your beneficiaries will benefit as they will potentially have a smaller equity release loan to repay at the end, when the house is eventually sold.

So the good news is that everyone is a winner at present. With equity release lending increasing as highlighted by the latest Equity Release Council statistics showing that Q1 of 2013 had a 17% increase in advances than Q1 for 2012.

There are many factors fuelling the new tide of interest in equity release schemes. We have seen that there are serious issues highlighted by the FCA report on interest only mortgages and people’s inability or shortfalls in repaying them. Many people are therefore looking at their options & those not wishing to downsize to resolve their shortfall are turning to equity release to settle the bills.

This could be in the form of the roll-up equity release where no monthly payments are required. However, if income is not an issue, then a retirement mortgage could be a better solution such as the range of interest only lifetime mortgage schemes we have available now from the likes of Stonehaven, more2life and Hodge Lifetime.

This is where expert equity release advice can help save you £1000’s in future potential interest charges. By selecting a company such as Equity Release Supermarket, you are accessing a range of interest rates & deals that are more competitive than standard deals on the market. It is wise therefore to always shop around to negotiate the best equity release deal possible.

Suddenly you’re approaching retirement and you’re left wondering – ‘where did the years go?’

Realisation is dawning on you all too clearly that from hereon in you will be reliant on a fixed income, your savings may start diminishing and your future anticipated costs are anything but guaranteed!

The question therefore is how do you protect yourself & family from those unforeseen costs that might suddenly arise? Well, there’s good news and bad news, and also a possible solution….so please read on.

Firstly, the good news.

The population of England and Wales is living longer than before and the most common age at death in 2010 was 85 for men and 89 for women, compared to 77 and 84 respectively in 1980. Thirty years ago there were 2,280 centenarians, today the figure is 11,610. Indeed this trend is set to continue and we are entering the age of the super centenarian (110). That’s the good news!

Now, for the bad news.

The basic state pension is currently £107.45 per week increased each April by the highest of either the average growth in wages, the Consumer Price Index or 2.5%. Yes, the new flat rate of pension of £144 per week will be payable from April 2017, but not for those already drawing the state pension.

And what happens to a surviving spouse or partner when they are widowed? Just the basic state pension and possibly the bereavement allowance up to £106 per week for the first year depending upon National Insurance contributions and the age of your spouse on death. Added to this is possibly a reduced private or occupational pension for the surviving spouse (usually the widow) if you are lucky enough to have contributed to a pension plan during your working lives.

So how will you cope with the cost of home improvements, car repairs, increasing utility bills, let alone any care costs? And how do you provide for the financial security of your spouse after you have gone? A widow could easily have in excess of a decade to support herself on a reduced income.

The Possible Solution.

This article might have given you the impression that my job is to go around depressing people, but in reality my job is to ensure that my clients are fully aware of how they can use their major asset – their home, as a form of insurance against future financial difficulties.

Most people are familiar with a mortgage. A Lifetime Mortgage applies the same principles, however instead of running for a fixed term, will actually run for the rest of your life. It therefore allows you to borrow until the remaining owner dies or goes permanently in to care.

Types of Lifetime Mortgage

The most common equity release plan is on the roll-up lifetime mortgage basis, whereby NO monthly interest payments are required and the full repayment of the mortgage is made from the sale of the home on the last survivor’s death.

However, with the latest innovation in the equity release market, more lenders will now allow you to pay off the full, or even partial monthly interest payments if you want to keep the eventual loan lower than would otherwise have been on a roll-up basis. The interest only lifetime mortgage provides a flexible option to carry into retirement and can now be obtained on a drawdown basis with more2life.

All these Lifetime Mortgages are portable if you want to move house in the future and, if leaving an inheritance is important to you, you can protect a percentage of the eventual sale proceeds of your home. All these lifetime mortgages provide a guarantee that you would never leave a debt to anyone by way of ALL lenders providing a ‘no negative equity guarantee’.

The Drawdown Lifetime Mortgage

The major attraction with a Lifetime Mortgage is the “drawdown” option. This feature will provide you with a lifetime borrowing limit but does not commit you to borrowing the whole facility immediately. The drawdown lifetime mortgage was therefore borne with flexibility in mind.

Before drawdown schemes became available from the likes of Prudential, Just Retirement & Hodge Lifetime, customers only had the lump sum option. Given this cash amount needed was to last them at least 3-5 years, many decided to opt for a larger amount than would otherwise have been necessary. Languishing in a bank account & receiving less interest than paying on the equity release scheme was not best advice. Hence, the introduction of the drawdown equity release plan enabling retirees to take a lower initial sum, but taking extra funds in the future whenever they required.

As an example, a husband and wife aged 78 and 72 with a property valued at £250,000 could have a maximum loan limit of £52,500 but only start with the minimum loan of £10,000.

Interest would only accrue on the initial £10,000 loan and the balance of £42,500 would be readily accessible if they needed it and could be taken in stages. This is an excellent way of providing security for future unforeseen expenditure and would be available for the surviving spouse to use should he or she be alone and on a reduced income.

In should be noted that certain equity release companies cannot guarantee the drawdown reserve facility for life. Companies such as Aviva do retain the right to withdraw the drawdown facility under certain major events which would render them unable to fulfil their drawdown requirements. However, there are still companies available that will guarantee the reserve facility. By opting for the guarantee, you may pay a slightly higher interest rate, nevertheless you may feel more secure knowing these funds are available for a minimum of 15 years ahead. With living in such uncertain times, this could be a blessing.

This ”Lifetime Mortgage Drawdown” option, which only commits you to borrowing a minimum of £10,000, is sensible insurance for the future and if you would like to discuss the matter in more detail then please do contact myself – Mike Vicary on 07795 195302 or email mike@equityreleasesupermarket.co.uk

With news that equity release schemes are becoming more of a mainstream mortgage for the over 55’s, we look at how the equity release market is regulating the protection of its consumers.

We have all heard the stories of how equity release schemes are bad for you and the local gossip columnists berating the expense of these plans. However, the equity release industry has come a long way since the original equity release plans were offered in 1965 when the average house price was approximately £4,000!

Why was regulation introduced?

It was the earlier version of equity release schemes that started creating a stir. Back in 1988 a new type of plan was introduced called a ‘home income plan’. They relied on using two financial instruments – an annuity or investment bond to provide an income, which in turn paid an interest only mortgage that raised the initial capital. The annuity income would have been sufficient to not only pay the mortgage but also provide additional funds to supplement the applicant’s income.

In 1988, the principles of the scheme were sound. However, there was no account taken of how future interest rates may change after a years of economic stability. Therefore when interest rates rose steeply in 1990 and property prices fell significantly, there were unfortunate cases of people experiencing negative equity. Additionally, as a consequence of higher interest rates, the annuity income became insufficient to cover the monthly mortgage payments, thereby wiping out the residual personal income also. These home income plans were subsequently banned.

The launch of SHIP

Such disastrous events were the catalyst for greater regulation of these equity release type products and led to providers in this market forming a coalition. This was heralded as SHIP (Safe Home Income Plans) and was introduced in 1991 to protect the holders of such schemes and their beneficiaries.

Further bad news

However, the problems were not answered immediately. During the mid 1990’s we had certain banks – Barclays and Bank of Scotland introducing SAM’s (Shared Appreciation Mortgages). These schemes worked on the basis that the mortgagee released an amount of equity in return for a proportion of the house value. No monthly payments of interest were required. However, the banks took not just the current value, but also a percentage of the future value.

You may recall that the mid to late 1990’s house prices thereafter soared. The bias was obviously in the banks favour (no changes there) to the tune of approximately three to one in their favour in any property escalation.

These schemes were consequently withdrawn and we are still hearing stories in the news today about people who took out SAM’s & have no redress financially from the FSA.

Step forward the FSA

Sooner, rather than later the Financial Services Authority stepped in to regulate the market & by 2004 the Government had brought forth legislation protecting lifetime mortgage customers. The protection didn’t just stop with the schemes; financial advisers now came under the auspices of the FSA and had to meet certain criteria to be able to provide equity release advice.

The FSA then introduced the Financial Ombudsman Service and put the FSA Compensation scheme in place to recompense people who had been mis-sold. Previously, applicants only had the courts as protection and taking on the banks could prove an expensive exercise.

By 2007, Home Reversion schemes were also governed by the FSA leading to stricter controls on all types of equity release schemes.

By this time some of the major equity release companies such as Norwich Union (now Aviva) and Northern Rock had joined SHIP. Equity release schemes started going through innovation with drawdown equity release plans becoming popular and being released initially by Prudential, Just Retirement & Hodge Lifetime. With mixed attitudes towards beneficiary’s inheritance, we had the introduction of interest only lifetime mortgages from Stonehaven which allowed some, or all of the interest charged being paid off.

So, not only has the market emphasis changed towards regulation, but also the products themselves have seen massive changed in concept and design.

Further peace of mind – legals

So far we have talked about how the FSA has helped regulate the market and the equity release companies themselves designing better products, but what about the equity release process itself?

The legal aspects of equity release have now been indoctrinated within the SHIP rules. It is here that extra layers of protection have been provided by the equity release solicitors and provide the final checks of the equity application process. From checking the identity of the applicants, establishing genuine reasons for the raising of capital, particularly when gifting to family and ensuring legal title & conveyancing thereof, solicitors have an important role to play.

Under SHIP rules, two solicitors must be involved – one for the applicant & the second on behalf of the lender. This is to ensure there is no conflict of interest and protect both the lender & equity release customer. The applicant’s solicitor must also sign a SHIP certificate to state he is satisfied that all aspects of the equity release have been brought to their attention, implications & that the rules of ‘caveat emptor’ persist. Until the SHIP certificate is signed then no equity release application can complete.

SHIP update

Further rebranding of SHIP was felt necessary as the market grew and a louder voice was felt necessary for the equity release market as a whole. After much debate it was proposed that ‘The Equity Release Council’ would provide the new voice of the industry. SHIP has now moved on and hopefully the feeling and attitude to all things equity release. It has travelled much distance since 1965 and overcome some dark days along the way.

Nevertheless, this is a new dawn for the equity release industry. With greater trust, greater demand and greater product innovation still to come the future is looking bright for the protection of its customers.

If you are considering equity release and need assistance on receiving the best equity release advice call the team on 0800 678 5159.